Bank of England Governor Mervyn King has warned inflation may rise above 4 per cent this year as oil and energy prices soar.

In an open letter to the Chancellor Alistair Darling after official inflation hit 3.3 per cent, Mr King said he had revised previous forecasts upwards due to a 15 per cent rise in oil prices in the past month and the prospect of higher gas and electricity bills.

The latest forecast puts the Consumer Prices Index at more than double the Bank's 2 per cent target.

But Mr King moved to quell fears in the City that borrowers would be hit by an interest rate hike to curb inflation.

He said attempting to bring inflation back down in the next 12 months would cause "unnecessary volatility" - a comment that prompted the FTSE 100 share index to rise per cent.

The Governor said he expects inflation to peak later this year before falling, although he stressed this forecast is based on no further unexpected rises in oil prices.

Some analysts have predicted oil - which hit a new record on Monday of almost $140 a barrel - could rise as high as $250.

The Governor is forced to write a letter if inflation moves more than 1 per cent above or below the Bank's target. It is only the second time this has happened since the Bank was granted independence in 1997.

Inflation has been on a steady climb since last August and jumped 0.5 points last month to 3 per cent, the biggest monthly rise for nearly six years.

Surging gas and electricity bills, food prices and Budget tax hikes on alcohol and tobacco were blamed for the leap.

Mr Darling said the Government is working on a "genuinely global" response to soaring food and oil costs and is determined to keep a lid on pay deals that might worsen inflation.

He said: "To return now to inflationary pay settlements would undermine rather than raise people's living standards with a damaging circle of wage increases eroded by steadily rising prices".

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